The S'No Risk Program (Management Decision Models) 1 Assignment

The S'No Risk Program (Management Decision Models) 1 - Assignment Example The increasing interest among the customers to buy Toro provided dealers the opportunity to clear inventory and regained confidence. Also S’ no risk promotion had basic cost of sales of 2.1% of sales which is normally 10% and hence the rates were raised (Bell, 1994, pp.1-2). The fair estimate of insurance rates will depend on the following factors namely, customer confidence, demand, insurance rates of other companies, cost of sales and profit margin of the company. On the basis of information given in the case, the impact of probable insurance rate on the profitability may be analyzed as follows, Items Single Stage Power Shovel Two-Stage Power Shovel    Min Max Min Max    Price ($) Retail Price 270 440 640 1500 Units Sold 100000 100000 20000 20000 Total Revenues 27000000 44000000 12800000 30000000 Basic Cost of Sales/Premium @ 2.1% 567000 924000 268800 630000 Profit 26433000 43076000 12531200 29370000 Premium @6% 1620000 2640000 768000 1800000 Profit @ 6% 25380000 4136000 0 12032000 28200000 Premium @8% 2160000 3520000 1024000 2400000 Profit @ 8% 24840000 40480000 11776000 27600000 premium @ 10% 2700000 4400000 1280000 3000000 Profit @ 10% 24300000 39600000 11520000 27000000 From the above table it can be said that when the rates are increased profitability will decrease and vice-versa. 2. The S’No risk program by Toro is shown below From the consumer’s viewpoint, the above structure exhibits an alluring percentage of refund which is entirely dependent on the amount of snowfall in the region. The structure states that when the snowfall would be more, the consumers would have the option to buy any variant of the shovel and when the snowfall would be comparatively lesser than other years then the consumers would be entitled to a refund. However the refund option would be valid till the figure reaches 50% average snowfall. Beyond 50% snowfall the customers won’t get the money-back benefit. Therefore we can conclude that both the pla ns would be in favor of the consumer. However a situation might arise when in a particular year, a customer purchases a self-propelled two-stage machine by paying a price of $1500 and on the same year the average snowfall in the region reaches 80%, then he will not be entitled to any refund. In this case the customers might think that he has made a wrong decision by spending $1500 for the shovel when he had the option to buy the one priced at $ 640. The chart discussed previously exhibits that the consumers prefer to spend the minimum and derive the maximum benefit from a product or service. Therefore it can be concluded that the rate which is most preferred by the customers is 6%. But 6% would not be preferred by the insurance firm as it would not bring them adequate revenue. Therefore Toro must choose a middle path to satisfy both the groups and it should go for the 8% rate. 3. The common decision trap in this case is the snowfall. For Toro, the sales volume would entirely depend on the amount of snowfall. For the Insurance firm, the snowfall would decide how much premium they are going to earn and for the consumers the snowfall would guide their decision of spending money towards the shovel. For all the three groups, thus the deciding factor is snowfall which itself is an uncertain and